Emerging markets 3D macroscope 2026: Integrating demographics, economics & finance

Emerging Markets (EM) are important in their significant contribution to global growth and global investments

Over the last four decades or so, the lion’s share of global economic growth can be attributed to EM growth. EM economies have performed well in terms of the latest 2025 GDP growth numbers (4% p.a.) but they currently remain more vulnerable to global aggregate macro uncertainty and geopolitical risks. The biggest advantage of EM economies relative to the developed economies are their lower debt levels due to lower old-age related expenditures and promises. But geopolitical risks remain which affect their economies and markets. These forces are currently in play as higher oil prices due to the US, Israel and Iran war are affecting interest rates, inflation, commodity prices as well as equity prices.

A three-dimensional framework

We present an integrative perspective which combines the demographics, economics and finance aspects of EM outlook. This allows for a comparative and consolidated view of the EMG6, a group of large EM economies (Brazil. China, India, Mexico, Russia and Turkey). The popular demographic view is that EMs are young, but we show that they are also diverse and few (like Russia and China) are ageing more rapidly and even faster than older Developed Market (DM) economies. Similarly, the economics view is that EM economies are growing. We show that their growth is slowing and contributing to slower global growth. On the financial markets view, they are growing. The EM financial markets are growing at different rates, but they need to develop faster with appropriate risk and compliance frameworks.

We challenge the popular optimistic views of EM economies based on their younger aged populations. We argue that mere youth does not translate to growth, development and prosperity in the future. We highlight that the larger EM economies have many challenges associated with ageing. EM economies are in different stages of demographic transition which impact their economies and investments, differently than the developed economies.

Demographics: not about age alone, demographic transition stages are different, and EMs should try best to capture the demographic dividend — it is not guaranteed based on youth alone.

This section presents a demographic view which in the following sections is related to the economic and investments’ view. EM economies are not as young as perceived with demographic challenges emerging across many of them and the largest of them. We adopt a broader definition of demographics which considers people characteristics (those as a consumer and worker), not restricted to age alone. EM economies are in different stages of the demographic transition with African countries at one end and Russia at another end with China ageing very rapidly too. Not all EM economies are young with most of Asia (which many considered young) having older populations than the world average. The charts below illustrate rapidly decreasing population growth rates and total fertility rates as well as increasing median ages and life expectancies.

These translate into higher old-age dependency ratios (higher old-aged dependents per working age person) as in the chart below. Note Russia’s and China’s rising old-age ratios. Old age dependency ratios are strongly correlated to public debt to GDP levels in developed economies causing fiscal sustainability concerns across Europe, Japan etc. Higher levels of debt to GDP tend to constrain economic growth — in countries while also leading to macroeconomic and financial instability concerns. See chart below.

In the context of labour force, migration remains a contentious issue in the world with geopolitical tensions and new alignments/blocs emerging. We chart below the net migration rates (immigration less emigration) of EMG6 which shows the recent trend towards out-migration. 

The demographic decomposition of growth breaks down GDP growth into its three subcomponents:

1. working age population growth
2. labour productivity growth
3. labour utilisation growth

Population growth, migration and old-age dependency ratios (that we have displayed and discussed above) have an indirect impact on GDP growth through the first two subcomponents of GDP growth mentioned above.  

Gender equality is a major priority and key issue for policy makers in countries, think tanks, social advocates and others too. We have also been advocating gender equality as a palliative against the demographic ageing time bomb for more than 25 years and also as a catalyst to growth and lower public debt. 

The charts on the sex ratio at birth show that the gender ratio is skewed in favour of males from birth — globally true as the ratio exceeds one hundred for all regions and all countries.  

Labour/Work Force: Workers in the labour force contribute to GDP and also to GDP per capita. In many EMs, labour force participation rates of males and females remain high as the economies are very labour intensive and agrarian in nature, with low average hourly wages. Despite the need for both males and females in a household to contribute to GDP, there remain large labour participation gender gaps for EMG6 ranging from the teens in China to nearly 50%+ in India and Turkey.  

Gender labour participation gaps point to a potential gap from the highest GDP levels that can be attained by any country. Whilst most countries have made progress on this front, many emerging markets still need to reach acceptable norms of labour participation differences of 10-15%. We have noted in previous research that there is still lot of room for progress even in the most advanced countries. The academic and policy literature in development economics and macroeconomics has found that increased female higher education and increased Female labour force participation contribute to closing the gaps in development and income of emerging markets relative to developed markets. There is however a popular perception that higher female labour force participation would lead to lower fertility rates and births which would impact the working age population in the future. Not immediately. But those concerns have been proved to be false in progressive European countries, where incentives for working women who have children have offset any negative impact. Incentives towards childcare, tax benefits and seniority offsetting the potential for lower birth rates. Globally, childbearing costs are quite large for families and couples considering having babies and these costs are the dominant factor in women’s decision to have babies. 

The chart below illustrates the “average annual hours worked” across the countries with India and China at the top versus Turkey and Mexico at the bottom. The PPP adjusted labour productivity comparative chart shows productivity increases over the 1990-2024 period. Note that growth in labour productivity is one of the largest components of real GDP growth. 

Increased urbanisation rates have accompanied increased development and prosperity. Urbanisation is considered a good process, but very extensive urbanisation creates negative effects. Rapid urbanisation of large cities of EM counties has led to the growth of megacities (cities with more than 10 million people). EM megacities have the lion’s share (22 of the largest 25) of world megacities in 2025 with Tokyo, New York, Osaka being the only developed world mega cities on the list. Megacities have been associated with problems and challenges related to crime, air pollution, water pollution, noise pollution, sanitation, and environmental health issues. High population density and its associated problems lead to greater inequality and dampening living standards with poor sustainability in the largest megacities in Brazil, Mexico, China and India. India has lagged in its urbanisation pace relative to the other five countries but has few of the largest and most densely populated megacities with the poorest air quality in the world in Delhi, Kolkata and Mumbai. 

The World Health Organisation (WHO) stated that the Covid-19 pandemic erased nearly a decade’s progress made in improving healthy longevity. Health is paramount in terms of productivity while an individual is a worker and then later as a retiree; healthy workers add to GDP growth and healthy retirees are less of a burden in terms of old-age expenditures by the government and the public debt of a nation. We find divergences in healthy life expectancy across EMG6 countries and those are accentuated further in their megacities.

The Demographic Dividend refers to the contribution of demographics towards increasing GDP per capita growth not just GDP growth.

In the previous two paragraphs we discuss health and urbanisation bottlenecks which hinder achieving higher growth. Poor health and congested infrastructure affect productivity and growth, both GDP and GDP per capita. Many EM countries have missed the window of taking advantage of the demographic dividend.  

Demographics affects GDP growth (explained more later) and directly the divisor population growth too. Most of the large EM countries face the Middle-Income Trap (pertains to levels of GDP per capita below 10K USD in nominal terms) challenge, a term coined by current World Bank Chief Economist Indermit Gill and Homi Kharas, more than two decades ago. Those challenges continue to persist. 

The chart below depicts GDP per capita and like for GDP, there is growth in GDP per capita and a very distinct acceleration over the last 25 years in all six of the large EMs that we discuss. 

The prospect of a future demographic dividend is not a certainty. It requires that GDP growth exceeds population growth to result in growth in living standards. If these nations cannot generate GDP growth and contain population growth through structural policy changes, they will continue to age faster than the growth of their incomes. Coordinated structural policy changes are needed to counter ageing (both EMs and DMs) as we have been mentioning over the last 25 years. Former Japanese PM Abe-San referred to it as the “Third Arrow” of policy. 

The limits of the “young EM” narrative 

The IMF’s latest World Economic Outlook (Oct 2025) world growth projections mark a downward path from 3.3% (2024) to 3.25% (2025) and 3.1% (2026) with advanced economies growing at 1.5% p.a. and emerging market and developing economies (EMDEs) growing just above 4% p.a. The IMF preface the report stating that “The global economy is adjusting to a landscape reshaped by new policy measures. Some extremes of higher tariffs were tempered, thanks to subsequent deals and resets. But the overall environment remains volatile…”

National Income based accounting yields the following identity decomposing GDP growth into its demographic underlying components.

We have discussed data and trends relevant to two of the GDP growth components above, the third component labour utilization growth is related to growth in average hours worked. The three growth components add up to give GDP growth. Next, we present charts on growth and inflation including forecasts based on IMF WEO data. Growth and inflation and inflation divergences support the EM heterogeneity hypothesis.  

Consumers and workers also contribute towards inflation. Consumer demands relative to supply affects inflation. Supply side inflation is affected by labour supply relative to demand where wage inflation (worker characteristics) is an important contributor. In the past, others have found that inflation is correlated with the highest periods of population growth. Skills shortages and immigration policies also contribute to inflation. 

The variations in level and volatility in consumer prices across countries is clear from the charts above. The practice of inflation targeting by the EM central banks following the Taylor rule and its variants has also had a significant role in reducing both the level and volatility of inflation rates.  

The charts below present public debt and unemployment. Public debt is increasing but is at much lower levels than developed markets, due to lower age-related promises and expenditures. The unemployment rates have recovered towards normal post the Covid period. 

In summary (using IMF forecasts), growth is trending lower and flattish, public debt is increasing, unemployment rates are higher than developed economies and inflation is much under control. GDP is comprised largely of final consumption expenditures, and the chart below (left) shows the share of final consumption expenditures to GDP. The contra to consumption (out of disposable income) is savings, both public and private, which get diverted mainly to investments. Noticeable are the high savings rates of EMG6 especially for China in the chart on the right. 

Local savings also aids local financial markets development. Emerging markets savings rates are typically higher than those of the advanced nations due to the precautionary savings motive and absence of proper social insurance and welfare system. These savings have contributed to growth in EM local currency markets and EM equity markets too. 

There is a well-known view that old-age dependency ratio (OADR) increases are positively correlated and causal towards public debt ratio increases for most developed ageing countries in Europe, Americas, Japan etc. Old age expenditures to GDP average upwards of 20% in EU and Japan even higher — these are unsustainable in the long-run.  

The two charts below plot the OADRs against general government gross debt for the EMG6, depicting three countries per chart. The relationships are correlated positively except in the case of Turkey. The reason is that there are no legacy promises for pensions and healthcare in the case of most emerging markets. This is a positive for EMs in terms of fiscal sustainability with less concerns of public debt limiting future growth prospects. 

Above, we linked EMG6 demographics (consumer and worker characteristics) to key economic variables7—GDP growth, debt, and inflation for the EMG6. In addition, we have related savings and investments above; they impact capital flows as well as current accounts too as shown in earlier research.

From demographics to markets: policy, savings and the implications  

Escaping the Middle-Income Trap requires more than just capital. Policy reforms in education, health, gender equality, labour, technology, social insurance, and pensions are needed to catalyse the potential towards increased GDP per capita (living standards).  

While EM markets represent 44% of global GDP, they still occupy a mere 11% of global equity indices. This is a gap driven by years of underperformance of EM Equity Markets versus the US.  

Investments are related to savings, financial market development, and availability of foreign investment alternatives by way of access. 

While EM markets represent 44% of global GDP, they still occupy a mere 11% of global equity indices. This is a gap driven by years of underperformance of EM Equity Markets versus the US.  

Investments are related to savings, financial market development, and availability of foreign investment alternatives by way of access.  

The link with Economics is that savings are the contra of consumption expenditures out of disposable income. Savings are used by financial institutions and investors to invest and generate a return. Savings is also related to the behaviour of the population and the confidence to invest in local markets and local institutions. To better understand EM Financial markets and history, it is necessary to have a knowledge of financial history of global investment returns. In the Financial History of Investment Returns, pioneers E Dimson, P Marsh, and M Staunton (DMS) in their 2025 UBS Investment Returns Yearbook noted the following.